Bitcoin becomes legal tender in El Salvador – What is the impact on the US?

El Salvador considers making Bitcoin legal tender

The hottest news in recent days is that at the Bitcoin Conference 2021, considered the “largest Bitcoin conference in history” in Miami (USA), President Nayib Bukele of El Salvador announced a partnership between the country. this with digital wallet company Strike.

“Next week, I will send to Congress a bill to make Bitcoin legal in El Salvador.”

Not only that, after TRON founder Justin Sun predicted:

“With this move, crypto investors and startups will soon move to El Salvador.”

President Nayib Bukele recounted some of the incentives the country has given the crypto sector:

“first. Amazingly beautiful weather, world class surf beaches, stunning ocean view property.
2. El Salvador is one of the few countries in the world that does not have a property tax.
3. We do not tax capital gains on Bitcoin, as BTC is a legal currency.
4. El Salvador will issue Permanent Residence (PR) immediately to crypto entrepreneurs.”

As such, it can be seen that El Salvador is creating an extremely favorable regulatory environment to attract the crypto startup ecosystem to migrate to this country. Not only considering BTC as legal currency, the country also does not tax assets with BTC, does not tax surplus if citizens profit from Bitcoin. And also issue PR cards to crypto entrepreneurs.

These moves are reminiscent of “Blockchain Island” Malta years ago. To attract crypto businesses, Malta passed a trio of crypto laws, firmly becoming a “Blockchain island nation”. Thanks to that, Binance and OKEx have “moved”, headquartered in Malta.

CZ praises El Salvador as a beautiful country!

However, what does El Salvador’s policy have to do with America? Let’s further analyze the laws of the country of flags!

Bitcoin and Tax Law in the US

Under US tax law, profits from foreign currency trading must be reported to regulators and taxed.

But according to Section 988(e), this profit will not be taxed if its value is less than (equivalent) 200 USD. That is, visitors or US citizens, or retailers if there is a foreign currency transaction with a profit less than 200 USD – will be treated as a personal transaction and not subject to tax.

According to the announcement IRS 2014-21, the IRS (US Internal Revenue Service) classifies Bitcoin as an “asset” and not a “currency” because “BTC is not legal tender in any jurisdiction.” No wonder US officials recommend that crypto transactions over $10,000 be reported to the IRS.

But that was 2014, by 2021 everything was different.

If Bitcoin becomes legal tender in El Salvador then IRS 2014-21 no longer accurate. At that time, BTC will be considered a “non-functional currency” (nonfunctional currency) in America.

So, what do all these “cheek tax” policies mean?

Meaning for American Citizens

When BTC is considered “currency” in the US, the tax law luật Section 988(e) will be applied. That is, if citizens, retailers in the US trade BTC with a profit value of less than (equivalent) 200 USD will not have to declare and pay tax.

This will open an unprecedented precedent in the country of flags.

For US businesses operating abroad – which can use foreign currencies, currencies other than USD – can use BTC as their primary business currency. Thus, with a profit less than (equivalent to) 200 USD, that BTC trading profit will not be taxed.

In a nutshell, American businesses, retailers or individual investors will be able to freely trade BTC and pay no taxes if the profit is less than $200.

At that time, the US regulatory environment will be more open to Bitcoin in particular and cryptocurrencies in general – paving the way for the acceptance of BTC in the US in the near future.

Jane

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